Posted on 01/31/2014 10:20:42 AM PST by 1rudeboy
This year marks the 100th anniversary of the canal’s opening, and you would be forgiven if you were unaware that billions of dollars in U.S. business is riding on its expansion.
Control of the canal was turned over to the Panamanians under a 1979 treaty signed by President Jimmy Carter, and until recently, nobody seemed to care very much about what was going on there.
Now, however, there is good reason to pay attention. The canal holds the key to the export of U.S. natural gas – and possibly crude oil -- to markets in Asia. This is a big deal, with a lot at stake for U.S. energy companies.
The point, of course, is that as the export of U.S. energy resources goes, so goes America – only even more so, a point driven home by the latest data showing that the United States is already the world’s biggest producer of natural gas and is expected to surpass Saudi Arabia as the world’s top producer of crude oil by next year.
Because it cannot accommodate large tankers, the Panama Canal is being expanded to about three times its present capacity. This involves widening and deepening channels along the 50-mile canal route and creating new sets of locks on both the Atlantic and Pacific ends.
The expansion is about three-quarters complete, but the cost of the project has increased from $5.2 billion to more than $7 billion, and construction has fallen behind schedule. An international consortium led by a Spanish construction company is building the new locks, and it says it won’t continue work unless the Panama Canal Authority pays about $1.6 billion in cost overruns. The dispute is now in arbitration.
Currently only about 6 percent of the world’s LNG tankers can pass through the canal. After the expansion, it will accommodate about 90 percent of the tankers.
Without the canal expansion, LNG tankers from the US would have to pass around the Cape of Horn at the bottom of South America for deliveries to Asia, adding thousands of miles and increased shipping costs to the journey.
Costs for LNG matter. U.S. natural gas is cheap when used for domestic purposes, but has to be frozen to a liquid, then piped onto tankers and transported across the ocean to international markets – all of which costs more than the gas itself.
Unless the dispute is resolved soon, America’s gas-export plans might well take a hit. As matters now stand, there is a very real possibility that Japan, India and other Asian countries will look elsewhere for their natural gas supplies – at least in the near term, if LNG tankers carrying natural gas from U.S. ports are forced to take the longer route around the Cape of Horn.
The dispute over the canal’s expansion is likely a contributing factor in the slow pace of the Department of Energy’s licensing of new LNG export terminals. All of which suggests that the Obama Administration’s failure to help resolve the dispute could have big negative consequences for U.S. commerce.
There are potentially many big losers if the completion of the canal is delayed, namely U.S. businesses that are counting on export markets to sustain domestic drilling and pay for the construction of LNG terminals and tankers. If the Administration doesn’t move quickly, the consequences would extend to thousands of American families whose jobs are tied to energy production.
Something else: Japan is in urgent need of natural gas supplies. Since the Fukushima nuclear disaster three years ago, Japan has been importing large amounts of energy at high prices and is desperate for U.S. natural gas.
The Panama Canal’s importance isn’t limited to its role in sustaining world trade. Without access to natural gas, Japan, India and other energy-consuming countries will need to burn more coal for electricity production, which will increase carbon emissions globally.
So a lot hinges on the Panama Canal expansion. America’s interest clearly lies in an expansion of the canal, and we should not sit on the sidelines while the dispute over the project’s cost continues. The Obama Administration should help resolve the dispute. The time for action is now.
Perry is a professor of economics at the Flint campus of the University of Michigan and scholar at the American Enterprise Institute.
The Chinese now have military bases at both ends, IIRC.
I think Hutchison operates container terminals on both sides of the Canal.
“Without the canal expansion, LNG tankers from the US would have to pass around the Cape of Horn at the bottom of South America for deliveries to Asia, adding thousands of miles and increased shipping costs to the journey. “
Or build a pipeline across Nicaragua. Or a line from Texas to the Sea of California.
Yeah, right. Let the ChiComs colonize them and let them colonize us.
Using post-Panamax sized ships to transport LNG through what is arguably one of the top five strategic waterways on the planet ...
What could possibly go wrong?
I’ve never heard it referred to as “The Cape of Horn” before.
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LOL—I didn’t catch that. Prof. Perry should have a word with the editor.
Who the hell is Jimbo?
I remember when the Panama Canal was surrendered....there were a lot of GOP Senators who voted for the treaty lost re election over this surrender of sovereignty...in fact the surrender helped the Reagan Revolution in 80
Now the canal pretty much belongs to the Communist Chinese
These days you have Free Trade Communists running around cheerleading this stuff. Back when this treaty passed...folks would have had serious rope burn around their necks supporting this.
This was my first awareness of any political issue...and in middle school at time. The critics of this treaty were proven right
I thought the Chinese were building a new canal.
The author’s contention is that there are billions of dollars of energy exports at stake. So the U.S. should take interest (but not necessarily hand over $).
mustn’t forget that William F. Buckey, the famous ‘Conservative’ sided with Jimmy in throwing away the Panama Canal.
They dug the hole, they can finish it. We have already dug enough debt holes. The Chicoms are supposedly building another hole in Nicaragua.
>>Who the hell is Jimbo?
Jimmuh Carter
I’ve predicted we will see American blood shed over the Canal in my lifetime. I said this probably 25 years ago, and still think it not unlikely. I’m mid-50s.
Actually, the US dug most of this hole back in WWII.
I didn’t realize just how much excavation was done back in the 40s for the third set of locks designed to handle the Midway class carriers and Montana class battleships. I knew that constuction was stopped due to a lack of steel for the locks, but actually digging out the new channels etc was pretty advanced. One of the reasons why the cost of this has been kept relatively low.
Actually, there might only be a short window of time where the US can establish itself in Asian markets for LNG. There are some enormous projects in Australia that are coming online over the next few years.
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